Why The Future Of IoT Needs Blockchain And Distributed Ledgers

However, since it was not originally created for real-time IoT communications, blockchain has its shortcomings. Notably, the fees associated with transactions make it less suitable for small exchanges, also known as microtransactions.

The Internet of Things is growing in potential and size at an accelerating pace. Connected devices already outnumber humans and will soon number in the tens of billions. In a few years, everything in your home, office, car and city will have connectivity baked into it and have "smart" capabilities.

But for the IoT industry to manifest its full potential, it'll have to overcome several challenges, including scalability and security. Current networking systems are based on centralized architectures, which require nodes to communicate with each other through a local or cloud server. This brokered model is required to ensure the security and integrity of communications.

However, while this model has helped maintain the Internet so far, it will become to respond to the growing needs of super large IoT ecosystems, which will pivot on high-frequency machine-to-machine communications. Imagine millions and billions of devices that need to interconnect in real-time having to go through a cloud server to perform critical tasks. Under such circumstances, the delay caused by the round-trip could have damaging or even fatal consequences.

Moreover, as last year's enormous Internet blackout grimly reminded us, centralized architectures suffer from single points of failure, which makes them extremely vulnerable to cyber attacks.

Blockchain, the technology that supports digital currencies such as Bitcoin, provides an alternative. Basically, the blockchain is a distributed ledger of transactions, or a database that is replicated on a large number of computers at the same time.

Since every node contains an identical version of the ledger, there's no single server that can be compromised or taken down to disrupt the functionality of the system. Moreover, any changes made to the ledger will have to be approved by a considerable number of participating nodes. This makes tampering the data on the ledger virtually impossible, as it would require compromising a large number of database instances at the same time.

In Bitcoin, blockchain made it possible to make and store digital currency and make monetary transactions without the need for centralized brokers. The same concept is now being expanded to other areas such as gaming, supply chains and the music industry.

Several companies are exploring the use blockchain and other distributed ledgers as the basis for peer-to-peer IoT device identification and secure M2M communications.

Blockchain has drawn the attention of companies such as International Business Machines (IBM), which is embracing it as the next generation of inter-device transactions and using it as the technology to enable IoT devices to exchange information without the need for intermediaries.

Filament, a manufacturer of wireless networking gear, uses blockchain to enable IoT devices to create secure mesh networks, a model that is especially useful in settings such as farming fields, where connectivity is scarce. Blockchain makes sure devices in the network can identify each other and securely send and receive data without the need for a central authority to oversee the traffic and authenticate the participants.

Other organizations such as ElectricChain are using blockchain to create a shared environment where IoT sensors connected to solar power generators can store and sell their output.

However, since it was not originally created for real-time IoT communications, blockchain has its shortcomings. Notably, the fees associated with transactions make it less suitable for small exchanges, also known as microtransactions. It also makes blockchain prohibitive for use cases such as securing data. Another issue with blockchain is scale. As the ledger grows in length, transactions become slower.

IOTA, a distributed ledger designed for the internet of things, works around the flaws of blockchain through the use of Direct Acyclic Graphs (DAG), a technology that is not sequentially bound to the age of the ledger as the blockchain is. This means that the size of the ledger will not be a deterrent to the performance of IOTA, rather the opposite, the more activity on the network the faster it operates. IOTA also removes fees entirely, which makes it suitable for true microtransactions as well. Microsoft, Ubuntu and Innogy Consulting are among the companies that back IOTA, which has been in development since 2015 and is going out of beta into full launch at present.

As IoT expands into a smart, machine-to-machine economy, the technologies that support it will have to evolve accordingly. Distributed ledgers might be the answer to the problems of a seamlessly connected world.